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Question
Anita, Benu and Chitra dissolve their partnership firm. Anita had taken a loan of 10,000 from the firm. What will be the entry to settle Anita’s Loan on the dissolution of the firm?
Options
Debit Realisation A/c; Credit Anita’s Loan A/c.
Debit Anita’s Loan A/c; Credit Realisation A/c.
Debit Anita’s Capital A/c; Credit Anita’s Loan A/c.
Debit Bank A/c; Credit Anita’s Loan A/c.
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Solution
Debit Anita’s Capital A/c; Credit Anita’s Loan A/c.
Explanation:
A loan taken by a partner from the firm is an asset because the partner owes this money back. At the time of dissolution, instead of collecting cash or transferring it to the Realisation Account, the firm directly recovers this loan by deducting it from the partner’s final capital balance. This is recorded by debiting Anita’s Capital Account (to reduce her payout) and crediting Anita’s Loan Account (to close the asset account).
